Its Time To Revise Or Scrap The 10 Medicare Supplemental Plans
In the early 1990s, congressional legislation designed to clean up the chaotic Medicare supplemental market instituted plan standardization to simplify consumer choice.
Adopted via the National Association of Insurance Commissioners were 10 model plan supplements. These plans, named alphabetically from A through J, were designed to take the guesswork out of selecting one companys benefits from anothers. All plans became identical from carrier to carrier.
It was vetted as well-intentioned legislation that mitigated much agent chicanery in selling the products, albeit at the expense of product innovation.
Today, however, that lack of product innovation has become a more serious issue to seniors than confusion over the prior issue of differing company benefits. I base this opinion on the state of todays market and also on what I am seeing in my practice.
Since President Bush was elected, he has made manifold comments regarding the archaic state of original Fee for Service Medicare. Explicitly, he has criticized Medicares failure to address current issues and risks facing American seniors.
The same condemnation can be made about the private insurance industrys mandated NAIC Medicare supplemental plan offerings.
Over the years, various news articles have complained that some of the plans provide consumers with benefits that most seniors dont need. One example is the protection against “excess charges” found in Plans F, G and J. Other articles have complained that the products are still confusing, that seniors still dont know which plan would be best for them and that the plan marketers are less than helpful.
Now, in 2003, the Medicare supplemental market appears to be even more bogged down. I view it as in a state of arrested development because agents and insurers are being forced to market within the straightjacket of these outmoded and misleading standardized supplemental contracts.
Although the structure of the original Medicare has remained unchanged since 1965, the supplemental plans effectiveness as a risk management tool was undermined by legislation in the early 1980s that altered hospital reimbursement. It was further undermined by additional legislation in the late 1980s that capped physician and outpatient provider fees.
The problem is, the 10 supplemental plans never effectively adjusted to these seminal changes. In fact, the standardized plans in todays market are actually less effective than many of their earlier predecessors.
For example, the plans have superannuated benefits–like the excess charges mentioned earlier, which are packaged into the higher priced Plans F, G and J. These benefits give the consumer a false sense of security in that the senior believes he or she will gain increased protection by selecting one of the more expensive plans when, in fact, that feature offers no significant added protection.
Still, the presence of the excess charge feature beckons to seniors. Some of my clients have spent up to get the extra features, often with the encouragement of their former agents, without realizing a lower cost plan would have served their needs.
It has become apparent to me that some unscrupulous agents actually have traded on the ignorance of seniors who know nothing about earlier federal legislation that effectively eliminated the very risk the seniors spent precious premium dollars to protect themselves against.
This leads me to conclude that it is time to either revise these plans or dump them.
An initial step might take the form of simply disaggregating the various benefits. This would allow a senior to select each benefit individually. It would also cause carriers to price a benefit based on the benefits actual value as reflected by its individual cost.
Ultimately, the NAIC will have to revise these plans to address current and future realities.
In my view, future supplemental coverage should be based on a foundation of permanent issue-aged short-term nursing home and assisted living protection. This should have, as optional benefits, the current traditional supplemental benefits such as the Part A hospital deductible and the Part B medical co-pay.
Such an approach to coverage reflects the risk realities that senior patients now face. Namely, todays senior patients face transitional, post-hospital care costs as they are transferred out of hospitals and into subacute care facilities.
This is the permanent risk we all face as the country moves forward into President Bushs vision of a new system that will be grounded in a managed care model–a model that will ultimately rely even more heavily on less expensive in-patient care venues.
Insurance agents and the carriers they represent can then compete to offer the client not only the base permanent facility coverage but continuous choices on better or more cost effective optional benefits, leaving undisturbed the underlying base extended care benefit.
, of Financial Care Services, Grand Rapids, Mich., is a senior product specialist who also maintains a Web site on senior health care products. His e-mail is Cbusher@aol.com.
Reproduced from National Underwriter Edition, July 7, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.